David Aston was kind enough to quote me in his Moneysense piece Are preferred shares a good buy?:
Third, before taxes, the yields on preferred shares tend to be pretty similar to those of long-term bonds for the same company, says preferred shares expert James Hymas, president of Hymas Investment Management in Toronto. Even though they’re not as reliable as the company’s bonds, they give you about the same before-tax yield. So if you’re investing inside a TFSA or RRSP where taxes don’t matter, go with the bonds.
Fourth—and this is their key advantage—the dividends on Canadian preferred shares get the same highly advantageous tax treatment as dividends on Canadian common shares. So they generally beat bonds hands-down when held in non-registered accounts, where taxes matter. In fact, as a rule of thumb, a bond has to generate about 1.3 times the before-tax yield in order to end up with the same after-tax income compared to a preferred share, says Hymas.
[This post was written 2012-2-6, but backdated to the Moneysense publication date, 2011-11-25)